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BEPS to start fighting harmful tax optimisation

The international community has expressed concern about international companies that take advantage of the possibilities afforded by different tax jurisdictions for tax planning purposes. Such companies aim to move profits into low-tax-rate territories, without actually being engaged in economic activity there.

In response to this concern, the G20/OECD published the BEPS (Base Erosion and Profit Shifting) action plan in July 2013. BEPS covers 15 different areas of activity, which are planned to be completed in three stages: September 2014, September 2015 and December 2015. For more, visit this link.

As a result of the work done by the BEPS international working groups, the international tax treaties and rules for resolving disputes will be amended where necessary. In coming years BEPS may also have a direct impact on local tax legislation and practices at tax authorities.

Challenges related to taxation of the digital economy

The highest priority is given to BEPS Action 1 – addressing the tax challenges of the digital economy.

The analysis and further activities conducted by the working group will focus on various challenges. One such challenge is the equitable distribution of corporate income tax base – as many companies have a significant presence and tax base in other countries through various digital economic business models – i.e. various digital goods/services are marketed but the company has no permanent physical place of business for the purpose of current tax rules.

Topics involving VAT and sales taxes on digital goods and services are also important. One example of the recent developments is the VAT changes that will take effect all over Europe on 1 January 2015 for businesses making B2C supplies of services provided online. We’ll cover the risks and opportunities of this scheme thoroughly in this article.

Although Grant Thornton Rimess will continue keep clients up to date with all major developments, those with a deeper interest in digital economy tax developments can visit the final version of the analysis published on 16 September 2014, available here.